United States v. Belal Faruki
803 F.3d 847
7th Cir.2015Background
- Between Jan 2010 and Jan 2011 Belal Faruki solicited investors for "Neural Markets," representing strong returns, auditing by RSM McGladrey, prime brokers TradeStation and JPMorgan, and that he managed $5 million for real clients.
- Marc Tishfield invested $1,000,000 after receiving a PPM; Richard Schottenfeld declined to invest after a meeting. FBI and third-party records showed many representations were false (no clients, no auditor engagement, no JPMorgan prime accounts, false educational claims).
- Faruki was barred from selling securities in Illinois in Jan 2010; TradeStation denied/closed his accounts after discovering the prohibition and false statements. Faruki then used friends’ accounts (Evolution Quantitative) and other brokers to trade Tishfield’s funds.
- Tishfield’s funds suffered losses; transfers moved the $1,000,000 through accounts Faruki controlled; TradeStation later terminated the accounts when it discovered Faruki’s control.
- Charged by indictment with wire fraud and related wire-transfer counts, Faruki was convicted on six counts; post-trial motions were denied and he was sentenced to 48 months. He appeals on sufficiency of evidence and two evidentiary rulings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of evidence for wire fraud (Counts 1–3) | Gov: testimony, broker/auditor records, IMs corroborate scheme and false representations | Faruki: government failed to prove false/material statements and intent to defraud | Affirmed — a rational juror could find false statements, corroboration, and intent beyond a reasonable doubt (evidence viewed in gov't favor) |
| Sufficiency re: wire transfers in furtherance (Counts 4,5,7) | Gov: post-payment transfers can be part of scheme; statute punishes one who "transmits or causes to be transmitted" | Faruki: transfers occurred after scheme complete and not in his name, so he didn’t "cause" them | Affirmed — post-payment transfers may further a scheme; record shows Faruki caused transfers via controlled third-party accounts |
| Admissibility of TradeStation audiotapes (Rule 403) | Gov: tapes show false statements to brokers and are probative of scheme/back-end conduct | Faruki: tapes unduly prejudicial and suggest propensity to lie to investors (Rule 404 concerns) | Affirmed — district court balanced probative value against prejudice and did not abuse discretion in admitting tapes |
| Limitation on cross-examination (Rule 106 and Sixth Amendment) | Faruki: court should have admitted his omitted statements for completeness; limiting cross-exam violated Confrontation Clause | Gov: admitting Faruki’s out-of-court statements would be hearsay; court allowed impeachment of witness statements | Affirmed — restriction to exclude defendant’s hearsay statements was not an abuse of discretion and did not plainly violate the Sixth Amendment; Rule 106 satisfied by allowing impeachment of witness statements |
Key Cases Cited
- United States v. Sampson, 371 U.S. 75 (superseding holding that a fraud scheme may include acts both before and after victims pay)
- United States v. Durham, 766 F.3d 672 (7th Cir.) (elements of wire fraud)
- United States v. Powell, 576 F.3d 482 (7th Cir.) (scheme to defraud requires false statement or concealment of material fact)
- United States v. Howard, 619 F.3d 723 (7th Cir.) (intent to defraud defined)
- United States v. Jackson, 540 F.3d 578 (7th Cir.) (district court’s discretion to limit cross-examination under Confrontation Clause)
- United States v. Khan, 508 F.3d 413 (7th Cir.) (Rule 403 balancing)
- United States v. Loughry, 660 F.3d 965 (7th Cir.) (definition of undue prejudice under Rule 403)